Study: Associate's degrees pay off big for state, students

California gets the best return on its investment in community colleges compared to any other state, and community college students don't do so badly either, according to a recent study.

Across the country, however, the study finds huge disparities in whether states even recoup the money they spend on community colleges. That has critics cautioning that flaws in the research methodology tainted the results.

The report, What's the Value of an Associate's Degree?, released earlier this month by research groups The American Institutes for Research and Nexus Research and Policy Center, found that California receives an average rate of return of $86,257 for every student who earns an associate's degree and doesn't go on for a higher degree over the course of his or her career. The median return on investment among all states is $42,600. The study's authors computed what they call the "return on investment" by calculating how much each state spends on its public community colleges compared with the additional tax revenues they expect to receive from higher future earnings of graduates with associate's degrees versus high school diplomas.

Individually, California community college graduates take home an average of $352,011 more over a 40-year career than someone with just a high school diploma. Only graduates in Nevada and Tennessee do better. (In California, the two year degree is referred to as an associate degree rather than an associate's degree.)

"Even after factoring in the costs that graduates incur when earning the degree, the associate's degree is a good investment," wrote authors Jorge Klor de Alva, president of Nexus Research, and Mark Schneider, a vice president at AIR.

The costs to students include tuition, books, fees and the loss of earnings from not working during the two, three or four years they were attending community college.

Best estimate or misleading?

The researchers studied 579 community colleges across the country -- about 60 percent of all the schools nationwide -- and, from those, compiled data for more than 80 percent of the colleges' full-time equivalent students.

To figure out each state's return on its investment, the authors used a complicated calculation that "not very many have tried," Schneider said. First, they had to figure out how much money taxpayers put into subsidizing a community college education based on state budget allocations, subsidized student loans, grants and the tax-exempt status of schools.

On the students' income end, they took the overall tax rate in each state, combining personal income and sales taxes, and applied that to the difference in income for someone with an associate's degree versus a high school diploma.

Across the country the results are astonishingly broad. At the high end, graduates in Nevada earn nearly $412,000 more than the state's high school graduates during their work life, while Missouri's students earn $84,000 less during their careers than they would have if they stopped their education after high school. The state of Missouri itself also doesn't recover what it pays into community colleges, losing a little more than $12,000 per student, the report said.

"The findings completely defy logic," countered Zora Mulligan, executive director of the Missouri Community College Association, a non-governmental organization that all the state's community colleges belong to. She said the report overstates the costs and understates the benefits, especially because it only looks at benefits from a small segment of graduates who earn associate's degrees. As is the case in most states, Missouri's community colleges have four tracks of students, Mulligan said -- those earning a targeted and industry-specific credential, students earning an associate's degree, students planning to transfer to a four-year college, and professionals seeking additional training, often through contracts with local industry.

Schneider acknowledges that the study's methodology has touched off debate because it's based on estimates of tax revenue and wages extrapolated over four decades. "How well we did it is a subject of dispute," he said.

Missouri's own economic analysis found that although people with associate's degrees earn an average of $11,000 more per year than if they just had a high school diploma, anyone with some higher education sees an incremental increase in their earning power, said Mulligan. In addition, the researchers in the AIR report didn't account for regional differences. Community college graduates in St. Louis earn about twice as much as students attending rural community colleges, she said.

"The research is so flawed that any conclusions based on the research are also flawed," Mulligan said.

The American Association of Community Colleges, AACC, also criticized the research, calling it "damaging and misleading" and "contradicted by many other studies."

In a response to the AIR/Nexus report on its website, the AACC concurs with Missouri that the "fundamental shortcoming" is that the study doesn't include community college students who earn certificates or those who transfer to a four-year college and earn a baccalaureate degree, and it excludes students who take more than three years to complete the associate's degrees.

Community college students increasingly seek certificates because some of the programs are shorter -- they range from six units, or two classes, up to 60 units, the same length as an associate's degree -- and they can get into the workforce sooner, and they're usually tailored to jobs that are in high demand in the local community. Over the past two decades, the number of certificates awarded by community colleges nationwide has increased from 124,500 to 425,000 a year, according to the AACC. In California, the community college chancellor's office reports that 65,000 students earned certificates in 2011-12, while 90,000 earned associate's degrees.

"Without these data, it is not possible to meaningfully portray either the value added by community college programs or the public's return on investment," the AACC wrote.

Data still valuable

Even the AACC admits that the study did provide some important insights and raise questions that need to be pursued. In general, the researchers found that the more money states put into a community college education and the lower the faculty-to-student ratio, the more graduates tend to earn.

The report also gives states very specific information on what happens to graduates at each college because in addition to providing data for each state, it breaks down earnings by campus.

Of California's 112 community colleges, 44 are in the "top tier" in terms of giving graduates the highest financial return, according to the study. Foothill College, in Silicon Valley, leads the pack, with its students earning $745,334 more during their careers than high school graduates. Three other colleges are in the $700,000 and above club: Ohlone Community College in Fremont, Golden West College in Huntington Beach and Evergreen Valley College in San Jose.

Having this level of information allows all the colleges to look at what's going on in the places that do well.

Judy Miner, president of Foothill College, cited a number of factors for her school's success, one being strong community support, including direct financial support and providing internships for students.

She also credits the college's solid liberal arts education for giving students the foundation they need to be successful in four-year colleges. Students from Foothill and other top-performing community colleges who transfer to the University of California and California State University do as well or better in class than students who started as freshmen, and graduate at about the same rate, according to the Community College League of California.

Successful schools also have a student-centered focus, Miner and others said. When community colleges lost almost a billion dollars during the recession, Foothill opted not to make across-the-board cuts, but to put their money into preserving their best programs, Miner said.

Golden West College took seven of its most popular degrees, grouped students into cohorts of 300 and developed a sequence of courses guaranteeing that those students will get the classes they need and be able to graduate or transfer within three years.

"We're moving our focus from offering courses that seem to fill, to offering courses that are actually on the pathway to completion," said Omid Pourzanjani, Golden West's vice president for instruction.

Location matters

Sometimes success is a matter of location, the report notes. Graduates of five California community colleges have lower median earnings than high school graduates in their regions.

Oxnard College in Ventura County is the lowest. Students graduating with an associate's degree earn $90,000 less during their careers than local high school graduates. The other four at the bottom of the scale are Mendocino College, Reedley College, Los Angeles Mission and Cuesta College in San Luis Obispo.

"The programmatic mix and the local economy are probably the biggest factors" in how well graduates do, said California Community College Vice Chancellor Patrick Perry. A college with a lot of high-tech and health majors will have higher-paid graduates than one that offers a large number of early childhood education classes, a career where salaries tend to be lower.

Although California came out well in the study, Perry is still a bit skeptical of the results. He said the Salary Surfer, an interactive tool developed by his office earlier this year, provides a more accurate picture of which majors generate the highest income because the wage figures come directly from the state Employment Development Department and are based on five years of data.

The AIR/Nexus researchers offer four recommendations to boost the rate of return both for states and students. Two are common sense: emphasizing degrees with occupational and technical skills that are in demand and have better pay, and making better use of data to understand which colleges are doing well, which aren't and how to help the latter.

The third recommendation, to increase funding and reduce the faculty-to-student ratio, is unlikely to happen until the state's finances improve. The fourth calls for funding community colleges "based not only on enrollment but also on specific performance benchmarks of student success."

This pay-for-performance idea was one of the draft recommendations in the state's community college Student Success Task Force report two years ago. It was overwhelming opposed and is no longer on the table.

Paige Marlatt Dorr, director of communications for the chancellor's office, put it succinctly: "It's not something that our system is currently looking at or approaching."